Quebec: Trends in tech transfer

Lessons from Quebec City Conference, which covered a host of topics relevant for governments interested in improving their venture ecosystems, including accelerators replacing business schools and improving tech transfer at universities.

One panel looked at Accelerators as the Next Generation of Business Schools, moderated by John Stokes, a partner at Real Ventures.

The panelists, Alex Bangash, managing director at Rumson Group, Carlos Espinal, partner at Seedcamp, Garry Tan, partner at Y-Combinator, Dave McClure, founding partner at 500 Startups, and Senia Rapisarda, vice-president of strategic initiatives and investments at the Business Development Bank of Canada, suggested that accelerators compete more with business schools than with venture capital funds to whom they provide a screened deal flow and whom they need for follow-on financings.

Accelerators are a very efficient way to select and train the most promising entrepreneurs. Entrepreneurs learn more through this operational experience on how to build a successful business than they do from discussing business cases.

As one of the workshop’s participants mentioned, generating MBAs is a big business and we are only at the beginning. As was the case for business schools, best practices will emerge and distinction will be recognized between first-tier and other accelerators.

Stokes’ panel followed the conference’s first panel, Building the Early Stage Ecosystem for Technology Start-Ups: Accelerators, Mentors, Business Angels and Seed Funds, which confirmed that something big and new is happening with the rise of accelerators. A different model based on powerful economic and technological trends is emerging and it is profoundly affecting entrepreneurial finance and the VC landscape. Their long-term role is still to be determined. However, we are only at the beginning of the process and panellists see accelerators as the next generation of business schools addressing the vast market of entrepreneurs globally numbering between 25 million and 250 million people. The development of crowdfunding and matching platforms such as Angellist is also beginning to have a huge impact on deal sourcing and seed financing

 Also at the event was a panel, New approaches to tech transfer and early-stage funding, moderated by Raphael Hofstein, executive president of Mars Innovation in Canada.

The workshop, which primarily covered life science/biotechnology, found the following points garnered a broad consensus.

• When proprietary approaches are not strictly necessary, there is a trend towards more open models.
• Governments are investing considerable amounts of research money in universities, hospitals and research centres ($5 billion in Canada). Leveraging this investment for economic and societal benefits is a legitimate objective and currently a priority for many governments. In order to do so, there is a need for hybrid models linking technology push and market pull expertise.
• There is still a gap, the “valley of death”, between university research and commercially viable product development. It is more than a financial gap: it is also an expertise gap. There is a need for intermediaries in order to advance university research further down the road and link it with product development expertise and market demand (pharmaceutical companies and venture capital).
• Linking early with pharmaceutical companies is a way for universities and intermediaries to bring in the right market knowledge and product development expertise. For intermediaries, partnering with pharmaceutical companies is also a way to share market knowledge, expertise and financial risk. Due to recent changes in their R&D strategies, pharmaceutical companies are presently looking for such partnerships.
• Non-dilutive money plays a critical role in closing the gap. However, money is only one factor. Can non-dilutive money also contribute to closing the expertise gap? How can it be managed effectively?

A variety of intermediary models represented in the room were reviewed: TTOs, intermediaries (CDCRD in Vancouver, MaRS in Toronto, MSBi-Valorisation in Montreal) and specialized venture capital funds (Amorchem, IPGroup, Orbimed and Versant). Different views were expressed regarding terms when linking with pharmaceutical companies. Some spoke in favour of the “option model” arguing that it allows for a better alignment of interests, tighter and more fruitful partnership and sharing of risks. Others indicated that they preferred to stay away from this model because it caps potential returns and puts the partners at the mercy of a pharma’s change in strategy (i.e., if the pharmaceutical company backs off, the asset becomes orphaned).

Finally, all of the participants insisted on the importance of non-dilutive money (tax credits, grants) to seed innovation in academia and support the first steps of technology transfer, with the caveat that this “free money” could easily be the least well spent.

Two schemes received special attention during the discussion:

• Seed funds that are matched with intermediaries. This non-dilutive money helps to move the technology forward and strengthens the position of the intermediary when negotiating the value of the IP.
• Matching funds that incentivize pharmaceutical companies, venture capital and academia to partner early on. Orbimed and MATIMOP presented projects of this kind.

Governments can also play an important role as LPs by providing matching funds to attract private sector money to private independent seed funds that invest in tech transfer projects.

This was the case with Amorchem with a matching funding ratio of 3:1 provided by the Quebec Government and labour sponsored funds.